Correlation Between Vanguard Windsor and American Funds

Can any of the company-specific risk be diversified away by investing in both Vanguard Windsor and American Funds at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Vanguard Windsor and American Funds into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Vanguard Windsor Fund and American Funds Inflation, you can compare the effects of market volatilities on Vanguard Windsor and American Funds and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Vanguard Windsor with a short position of American Funds. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Windsor and American Funds.

Diversification Opportunities for Vanguard Windsor and American Funds

-0.59

Correlation Coefficient

Vanguard Windsor  American Funds

Excellent diversification

The 3 months correlation between Vanguard and American is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Windsor Fund and American Funds Inflation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Funds Inflation and Vanguard Windsor is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Vanguard Windsor Fund are associated (or correlated) with American Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Funds Inflation has no effect on the direction of Vanguard Windsor i.e., Vanguard Windsor and American Funds go up and down completely randomly.

Pair Corralation between Vanguard Windsor and American Funds

Assuming the 90 days horizon Vanguard Windsor Fund is expected to generate 2.73 times more return on investment than American Funds. However, Vanguard Windsor is 2.73 times more volatile than American Funds Inflation. It trades about 0.08 of its potential returns per unit of risk. American Funds Inflation is currently generating about -0.12 per unit of risk. If you would invest  2,332  in Vanguard Windsor Fund on September 14, 2024 and sell it today you would earn a total of  85.00  from holding Vanguard Windsor Fund or generate 3.64% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Vanguard Windsor Fund  vs.  American Funds Inflation

Vanguard Windsor

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Windsor Fund are ranked lower than 6 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Vanguard Windsor is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

American Funds Inflation

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds Inflation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Windsor and American Funds

The main advantage of trading using opposite Vanguard Windsor and American Funds positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Windsor position performs unexpectedly, American Funds can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in American Funds will offset losses from the drop in American Funds' long position.

The idea behind Vanguard Windsor Fund and American Funds Inflation pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.